After the bankruptcy of the Silicon Valley Bank: Start-ups got off with a “black eye”.
The bankruptcy of the Silicon Valley Bank (SVB) and the shock wave that rippled through the financial markets seems to have had little effect on the German start-up scene for the time being. “Originally, this is not a start-up crisis. It is a bank’s refinancing problems,” said the chairman of the Federal Association of German Start-ups, Christian Miele, of the dpa. “I am confident that venture capitalists will not show any major reluctance.”
“I’m old enough to remember Lehman Brothers.”
“The SVB bankruptcy was less relevant for German start-ups because very few had their main account there – it was very different in the USA and Great Britain,” said investor Filip Dames, founder of venture capitalist Cherry Ventures the Handelsblatt. Investor Christoph Janz from Nine Point Capital also said in a Linkedin post that the tech community “got off with a black eye”.
Nevertheless, Janz sees reason for self-criticism: “What I really blame myself for is that I didn’t tell the founders to spread their money across different banks. It’s okay for a founder in his 20s not to think about it, but I should have known better. I’m old enough to remember Lehman Brothers.” Janz believes that venture capitalists have thoroughly screwed up the issue.
German branch closed
In a survey by the Handelsblatt among the 36 German start-ups valued at more than one billion US dollars, around a third stated that they had no contact with the SVB. Part of the third are companies like N26, Volocopter, Forto, Enpal, Flix, Trade Republic, Flink, Solaris, Omio and Grover. Other companies such as Personio, Celonis and Mambu either had deposits or loans from the SVB, but also relied on other banks. The majority did not answer the question.
The branch of the SVB in Germany, which was closed by the financial regulator Bafin on Monday, did not operate any deposit business. However, some start-ups in this country have used the offers of the British SVB subsidiary, said Christian Miele from the Federal Association of German Start-ups. With its takeover by the major British bank HSBC, it seems ensured that German start-ups that have deposits there will have access to their money again. “This was an important step to avoid short-term liquidity bottlenecks in affected German start-ups.” The security of all SVB deposits by US authorities also defused the situation in the USA.
Nevertheless, the collapse of the bank is not a good sign for the German start-up industry. Because of rising interest rates in particular, financiers have recently been reluctant to make large capital injections and have shied away from risky business models. While the start-up industry celebrated a record year in 2021, financing for German start-ups collapsed in 2022. As a result, the valuations of start-ups plummeted, and some growth companies cut jobs in droves.
There was no domino effect
The California financial regulator Department of Financial Protection and Innovation (DFPI) declared SVB insolvent at the end of last week and took over the bank’s business. Earlier on Thursday, SVB customers had withdrawn $42 billion in deposits. This was preceded by an attempt at a capital increase, which was intended to compensate for a financial imbalance from bond sales. Technology funds such as Peter Thiels Founders Fund, Coatue Management or Union Square Ventures are said to have advised their partners to withdraw their deposits. SVB’s clientele consisted primarily of technology companies, start-ups and venture capitalists, which is why a domino effect was expected in the Silicon Valley ecosystem as a result of the bankruptcy.
But that didn’t happen, because US Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and the US Deposit Insurance Company (FDIC) announced on Sunday that they would fully protect depositors. Typically, US deposit insurance only covers $250,000 per account. The auction for the remaining parts of the SVB is still running – so far no buyer seems willing to take it over completely, writes the New York Times. According to reports, the main winners of the bankruptcy are the large US banks such as JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, which were able to welcome many new customers from the start-up scene and their deposits.
Bank rescue in Switzerland
Even if the tech scene comes out of it without major damage, the after-effects on the financial markets and in the banking world are now also being felt in Europe. It was only this Thursday that the Swiss central bank had to help the already ailing major bank Credit Suisse with a credit line of up to 50 billion francs (around 51 billion euros) in order to calm the financial markets and prevent a crisis.
So far, no major effects are expected for Germany. Federal Finance Minister Christian Lindner (FDP) said on Wednesday evening: “With Bafin, we have efficient financial supervision, and we have the Bundesbank, which also has a tradition of stability policy. We can therefore say very clearly: the German credit system – private banks, savings banks, cooperative institutes – is stable.” The Bundesbank had previously confirmed that German banks were “robust, stable and resilient”.
(sigh)
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